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Will Manufacturing be India’s Future?
Post US Presidential Elections 2016, Rising protectionism and Automation have emerged as the biggest challenges for emerging markets like India and China. Economics experts say that it is the time for India to switch from Manufacturing to the Services sector which can drive the Indian economy to the pinnacle of success.
How Manufacturing Can Benefit the Agricultural Sector?
Agriculture, which currently employs nearly 45% of the workforce, is obviously not to be neglected. The point, instead, is that those currently deriving their incomes from agriculture would greatly benefit from accelerated growth in manufacturing.
• Nearly 50% of India’s farms are less than half a hectare, a size too small to yield adequate living standard for a family of five. Owners of these farms will benefit directly if one or more of their family members found good jobs in manufacturing and services. Those continuing to cultivate will benefit from increased land per farmer as some farmers migrate to manufacturing and services.
• Dynamic services sectors such as: Software and Finance generate relatively few jobs. Tourism, Transportation, and Construction hold greater promise but their growth is highly dependent on the performance of the Manufacturing Sector. For example: Transportation sector flourishes when manufacturing sector generates demands for its services. Likewise, tourism and construction are spurred by higher incomes generated by manufacturing.
Can Manufacturing Sector Create Sufficient Jobs?
Two arguments have been offered recently in support of a negative answer to this question: rising protectionism around the world and automation.
• The First argument says that when South Korea, Taiwan, and China transformed, markets were relatively open. Therefore, these countries could take advantage of scale economies in manufacturing by exporting their products in large volumes. The same option is not available today due to rising protectionism around the world.
• The Trade tensions, especially between the United States and China, the global economy is far more open today than in the days when South Korea and Taiwan transformed. Indeed, it remains more open than even during the 1990s and the early 2000s when China transformed. Much of the liberalisation under the Uruguay Round Agreement was implemented between 1995 and 2005 and remains intact.
• The Second argument, automation, says that with advances in technology, manufacturing is becoming highly automated and it will move back to the developed countries. This argument too has been grossly overstated. It is true that automation is on the increase and perhaps at a faster pace than in the past. Yet, many tasks remain far from being automated at the technical level while many others, though technically feasible, are commercially unviable.
The Global Scenario:
The Global Market in Merchandise exports worth US $15 Trillion today. The share of India in these exports is only 1.6% compared with 12% of China. Even if the export market were to shrink by one or two trillion dollars in the coming years, India could more than double its exports by raising its share in the world market to 5%. This is not an infeasible proposition: China’s share in the world exports as recently as 2000 was only 4%.
Rising Automation Across the Globe:
• Nothing illustrates the limits of automation better than the efforts by Adidas to automate the manufacturing of sneakers. At the end of 2015, the company had opened its first high-tech speed factory in Germany, which produces sneakers using intelligent robotics technology. More recently, it has opened a shoe factory that uses 3D printing technology.
• According to Mr. Kasper Rorsted, CEO of Adidas, “full automation of sneaker manufacturing is unlikely in the next 5 to 10 years. Currently, Adidas produces only 1, 000, 000 out of its total production of 360, 000, 000 pairs in automated factories. When asked whether manufacturing is poised to return to the United States and Europe, Rorsted says, “I do not believe, and it is a complete illusion to believe, that manufacturing can go back to Europe in terms of volume.” He adds that – “despite political interest in the United States to bring back manufacturing, it is financially “very illogical” and unlikely to happen. What is true of shoe manufacturing is even truer of apparel, where we are still to see the appearance of the first factory that automates manufacturing as much as the German Adidas factory has done for shoes. And the global apparel market is huge. Think of apparel demand in Asia alone, which has a population of 4.6 billion. And with its high and rising wages, even China will soon begin to satisfy much of its apparel demand from imports. Nations that manage to capture this market will create vast numbers of good jobs for their citizens. India can scarcely afford to pass on that opportunity.”
Content courtesy: Power2SME